Monday Digest #112
Weekly summary of finance, economic and tech news. Vision from DreamTeam. With 💜
OPEC and the US: fighting for market share. The beginning
Head of the IEA: “We are witnessing the second wave of the shale revolution in the US, which will significantly affect the market and the price of oil
(..)
Now is not the time for Self-consolation: we do not see a peak in demand for oil in the near future. And if investments in the world do not rebound sharply, a new period of price volatility is on the horizon.”
According to the IEA, if oil prices remain at about $ 60 per barrel, oil production in the US will grow by 1.4 million barrels per day by 2022. If prices rise to $ 80, then the increase in oil production in the US over the next five years may be twice as high — 3 million barrels per day. Conversely, if the prices are around $ 50, the oil production in the United States, according to the expectations of the IEA, will decline from the beginning of the 2020s.
Reuters: Senior Saudi officials have warned US oilmen that they should not expect to extend OPEC restrictions, thanks to which world oil prices went up.
Energy Minister of Saudi Arabia Khalid al-Falih at the conference in Houston: “There will be no “freebies” for shale oil producers”.
Also at the meeting with the leaders of Anadarko, ConocoPhillips, Occidental Petroleum Corp, Pioneer Natural Resources, Newfield Exploration and EOG Resources, which was held behind closed doors, One of the advisers of the head of the Ministry of Energy said that OPEC does not intend to make sacrifices in order to increase the production of shale oil in the US. “He said that we and other shale oil producers should not be sure that OPEC will extend the duration of the restrictions,” the Reuters source said on condition of anonymity.
John Taylor was a conservative economist, so he suggested setting interest rates based on inflation, employment and growth rates. Now Taylor’s rule suggests a rate of slightly above 3.8%, whereas in reality the Fed keeps it at 0.5–0.75%. The difference already exceeds 300 basis points, and this is the highest level since 1977.
Recall that the market expects the Fed to raise rates at the next week meeting.
On the eve of the Fed meeting the LIBOR money market is growing. At the moment, it “crawled” to a 5-years high — 1.11956. It should be noted that the cost of money on the interbank market in London has doubled over the year.
The bull market of the USA is 8 years old
March 9, 2009 is considered to be the date of the global upward trend on US stock exchanges. 8 years ago, the S&P 500 index was at 666 points and showed growth, thus putting an end to the collapse, which later becomes known as the global financial crisis.
After 8 years, the S & P500 index grew more than 4 times and reached 2365 points.
What’s next? Judging by the data on purchases and sales in 2017, the managers stopped building up bullish positions. According to Credit Suisse Group AG, investors has reduced dependence on the US stock market and got rid of the sensitive shares of banks, as well as reduced investments in commodities such as copper. They are investing in gold.
Benjamin Dunne, president of Alpha Theory LLC, working with hedge funds with assets of about $ 6 billion:
“This kind of dynamics is partly the result of the diligence of the managers who fix the profit after the longest rally of bank shares since 2013. At the same time, the change reflects the continuing uncertainty about the pace of reform and the improvement of the economic situation. A lot of of the funds with which I communicate, admit: ‘My crystal ball was clouded’. Many of them took a wait-and-see attitude, as mood indicators grew, but actual statistics do not reflect improvements. “
#Ouropinion of Mikhail Dorofeev, head of the Analytical Department of DTI, PhD, associate professor of the Department of Finance and Prices of the Russian Economic University. GV Plekhanov:
“There is such a model of Berner, according to which the US market (Dow Jones Industrials) sets peaks at certain intervals. This model is about 8–9–10 years. The current main trend falls under 8 years. Thus, the model is expected that the market will form the peak in 2017–2018 and then there will be a strong collapse with panic sales. Therefore, long-term passive investors need to be extremely cautious when forming a portfolio in the US stock market. Before 2021 it is not recommended to buy. In 2021 the formation of the bottom of panic sales and the main bearish trend are expected.
= >> These are good opportunities for active strategies in the US market.
#Macro #Finance
UBS and Goldman Sachs: the dollar has become too expensive
Analysts of the world’s largest management companies use the old theory to try to answer what is the true value of the dollar.
The analysis methods can vary, however, both UBS Wealth Management and Goldman Sachs Asset Management, managing total assets of more than $ 3 trillion, send the same signal that should frighten the dollar bulls: the dollar has become too expensive after a 30% rally, which lasts almost three years.
- The UBS Wealth models show that the dollar is highly overvalued now; the analysts community is too positive about this currency, — predicts Thomas Fleury, head of the foreign exchange markets research in Zurich
- The dollar is near the 14-year peak and about 15 percent stronger than its fair value, which is $ 1.24 per euro according to UBS
- According to the median forecast in the Bloomberg poll, Wall Street expects the dollar to strengthen to $ 1.05 against the euro this year comparing with about $ 1.06 on Monday
- Fair value may be the dominant factor for the euro-dollar pair at a time when the market is discussing the timing of the ECB’s quantitative easing program, which limits the growth of the euro
- The trading rhetoric of Donald Trump is another reason why currencies are in risk of returning to their base value this year, says strategist Stefan Kessler of Goldman Sachs.
#Ouropinion of Mikhail Dorofeev, head of the Analytical Department of DTI, PhD, associate professor of the Department of Finance and Prices of the Russian Economic University. GV Plekhanov:
“I think that the dollar index will tend to 120–125, so I expect the Fed to raise rates, as well as the fall of oil against due to a worldwide scandal with the failure of an attempt to reduce oil production. I think that the Saudis will not simply curtail the program of reducing production, but will begin to increase production and again try to intercept a part of the market share from the Russian Federation and the US as much as possible. Let me remind you about the “reliable” statistics of China, which analysts who expect growth in demand for black gold are betting. What will happen to oil prices, if in addition to rising oil supply, demand also begins to fall?
Due to it, the ECB will keep a zero rate not only to fight against deflation (there is an opinion that the fall of oil is disastrous to achieve plans of increasing inflation in the EU) and to “patch up” holes in the very flimsy economy of the Euro zone.
It is important not to forget that in the Euro zone there are a lot of bad debts, which were repeatedly antiheroes of the first news bands several years ago. Since then, the problems of world debt have become even worse, because money is becoming more expensive, and the quality of debt and financial stability of the countries of the Euro zone have become worse.
Thus, the problem of the debt crisis will inevitably begin to manifest itself in the gloomiest colors on the background of a steady increase in the Libor rate and the value of money in general. If the ECB begins to squeeze liquidity, it will only accelerate the collapse of the entire system.
In general, from a fundamental point of view, you can write a lot and justify different points of view. Prices do not lie. Technical analysis clearly shows at least parity, but, rather, the achievement of Eurodollar value of 0.8.
The North Korea is disconnected from SWIFT
North Korean banks lost access to the international banking system after the UN issued a statement that any company that cooperates with North Korean banks is a violator of sanctions.
Reuters: This decision was justified by the growing international tension over the aggressive military conduct of the capital of the DPRK — Pyongyang.
These steps were taken by SWIFT last week, following the report, which provided evidence that North Korea ignored the sanctions, relying on the available access to the international banking system.
The background: North Korea has long been under economic blockade, and all of its economic activity is mainly connected with China. However, recently Beijing has repeatedly made it clear that North Korea is a heavy burden and risk for the sake of the regime of Kim Chen In, the leadership of the Celestial Empire will not. Under these circumstances, the disconnection of North Korean banks from the international payment system can cause rapid degradation of the country’s banking system and tightening of economic conditions in the country.
China’s trade deficit peak
Reuters: China published data on a rare trade deficit in February, as imports grew much stronger than expected.
- Import in Yuan grew by 44.7% compared with the previous year,
- Exports rose by 4.2%, according to official data on Wednesday,
- This led to a trade deficit of 60.63 billion Yuan ($ 8.79 billion) in February.
Reason: a multi-month construction boom, which was caused by the growth of commodities, such as iron ore, copper,and energy.
#Commodities
China has launched the world’s largest floating drilling platform
South China Morning Post referring to the Central Television of China (CCTV): its weight is 42 000 tons, the height is equal to 37-storey building, and the area of the surface deck is equal to the area of a standard football field. The cost of the platform is $ 700 million. “Lanjing-1” will be engaged in commercial activities in April after its testing.
The platform is able to drill up to a depth of 15.2 kilometers below the surface of a sea or ocean, where the depth is over 3.6 kilometers. The new drilling platform is the largest platform of this type.
The purpose of the creation: “Lanjing-1” was created specifically for work in the South China Sea, where oil fields can be located at a depth of 3 thousand meters below sea level.
US rents out land in the Gulf of Mexico
The US authorities announced their intention to lease 73 million acres (about 295.4 thousand square kilometers) of land in the Gulf of Mexico. The sites will be handed over to develop new oil and gas fields. It is assumed that as a result, the US will be able to get from 0.2 to 1.1 billion barrels of oil and up to 118 billion cubic meters of gas.
The sites are on the coast of the states of Louisiana, Texas, Alabama, Florida and Mississippi. Leasing is scheduled for August 16 this year.
This news, among other things, affected the decline in oil price.
Oil. Price forecasts from investment banks
According to the median forecast of 15 Wall Street Journal experts, the average price for Brent in 2017 will be $ 57, at WTI — $ 55 per barrel.
The main “bull” is Standard Chartered ($ 68 by the end of the year for the Texan class), “bear” — ING Bank ($ 45). Bank forecasts for WTI:
Fresh forecasts from investment banks on the price of oil (from the 6th of March ‘17).
#Interesting
Blockchain and logistics: a real cost-cutting case
The Danish giant Maersk announced the completion of the first stage of tests of blockchain, which was used to simplify the way of sending valuables for trillions of US dollars around the world.
The use of the blockchain was designed to help reduce costs by transferring expensive and time-consuming processing paper documents that are transferred between transaction participants to a smart-contract system based on the blockchain system.
Testing was created in partnership with IBM, using the open source project Hyperledger Fabric. The essence was to transport cargo across the Atlantic ocean to Schneider Electric, a French company that deals with automation and electrical equipment.
Abraham Goksen, head of the Maersk Transport & Logistics division:
“We believe that the blockchain has a huge potential in applications related to supply chains. We do not think that the technology is ready for a wide application in our work, and we will only explore various uses to understand what the blockchain can do. “
Goksen believes that solutions on the blockchain not only can reduce the number of paper documents needed for processing. They are also be useful in combating widespread fraud in transporting goods when containers are labeled incorrectly.
“A lot of enterprises are usually included in the supply,” he said. “A lot of signatures are required, and the blockchain simplifies the exchange of information for the parties, eliminating the risk of cheating the system.”
SEC refused to start bitcoin-ETF
“The Commission rejects the proposed change in the rules of the [BATS Global Exchange], because it does not consider the proposal to comply with the provisions of Section 6 (b) (5) of the Exchange Act, which requires, inter alia, that the rules of national securities exchanges are drawn up with the aim of protecting interests of investors and state, preventing fraud and manipulation. It is emphasized that the changes cannot be accepted because in their majority bitcoin-markets are unregulated, and also because BATS Global Exchange has not concluded and cannot at the moment conclude a monitoring agreement similar to those concluded for all previously approved exchange products in order to prevent manipulation and fraud. “
Background: Winklevoss Bitcoin Trust could become the first exchange-traded fund in the history of financial markets, which would work exclusively with bitcoin and could attract the attention of large investors working with traditional assets. Read more — to read.
Facebook takes the example with Netflix
WSJ: Facebook, like Netflix and the main TV networks, is going to show original video content to users. Now we are searching for the video content of interest to the company. Among the declared themes are sports, science, pop culture, lifestyle, video games.
Facebook focuses on programs, shows, serials lasting up to 30 minutes and plans to show them once a week. For every episode of programs the company is ready to pay up to $ 0.5 million plus an interest of advertising revenue. Official representatives of the company declined to comment this topic.
Peaks in speech recognition technologies
Business Insider: For speech recognition technologies, 5.1% is a magic number. If the percentage of errors in the system is approximately equal to it, this means that the technology’s capabilities have approached human ones (people do not understand about 5% of words in fluent speech).
IBM announced that it achieved a result of 5.5%. This means a significant breakthrough in the technologies of artificial intelligence, which “lives” in virtual assistants, such as Siri, Alexa and Google Assistant. Previously, the AI of the company showed a result of 6.9%, and the previous record of the algorithm from Microsoft was 5.9% of errors.
George Saone, an IBM researcher: the company aims to achieve a 5.1 percent error rate to equalize computer-assisted speech recognition with human.
